FORD MOTOR CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) In the second quarter of 2022, we contributed $154 million to our global funded pension plans. We now expect to contribute between $600 million and $700 million to our global funded pension plans in 2022. Shareholder distributions were $407 million in the second quarter of 2022, all of which was attributable to our regular quarterly dividend. We previously announced our plan for the global redesign of our business, pursuant to which we are working to turn around automotive operations, compete like a challenger, and capitalize on our strengths by allocating more capital, more resources, and more talent to our strongest businesses and vehicle franchises. Beginning with the actions we took in 2018, we expect our global redesign to have a potential cash effect of about $6 billion through 2023. The cash effect related to our global redesign activities was $3.4 billion through June 30, 2022. Available Credit Lines . Total Company committed credit lines, excluding Ford Credit, at June 30, 2022 were $19.3 billion, consisting of $13.5 billion of our corporate credit facility, $2.0 billion of our supplemental revolving credit facility, $1.75 billion of our new 364-day revolving credit facility (as described below), and $2.1 billion of local credit facilities. At June 30, 2022, the utilized portion of the corporate credit facility was $25 million, representing amounts utilized for letters of credit, and the utilized portion of our 364-day revolving credit facility was $750 million. In addition, $1.7 billion of committed Company credit lines, excluding Ford Credit, was utilized under local credit facilities for our affiliates as of June 30, 2022. Our $1.5 billion delayed draw term loan facility, which was drawn in full in 2019, was repaid on June 23, 2022 as described below. Our corporate and supplemental revolving credit facilities were amended as of June 23, 2022 to, among other things, extend the maturity dates of the commitments under each facility. Following the corporate credit facility amendment, $3.4 billion of commitments mature on June 23, 2025 and $10.1 billion of commitments mature on June 23, 2027. Following the supplemental revolving credit facility amendment, $0.1 billion of commitments mature on September 29, 2024 and $1.9 billion of commitments mature on June 23, 2025. Also on June 23, 2022, we entered into a 364-day revolving credit facility, with $1.75 billion of commitments maturing on June 22, 2023. This new 364-day revolving credit facility further strengthens our liquidity, provides working capital funding, and is intended to be utilized. On June 23, 2022, we drew $750 million under the 364-day revolving credit facility, which, along with $750 million of Company cash, was used to prepay the full $1.5 billion outstanding under our delayed draw term loan facility. The maturity date of the delayed draw term loan facility was December 31, 2022. The corporate, supplemental, and 364-day credit agreements include certain sustainability-linked targets, pursuant to which the applicable margin and facility fees may be adjusted if Ford achieves, or fails to achieve, the specified targets related to global manufacturing facility greenhouse gas emissions, renewable electricity consumption, and Ford Europe CO 2 tailpipe emissions. The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or fixed-charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding or trigger early repayment. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the facility. The terms and conditions of the supplemental and 364-day revolving credit facilities are consistent with our corporate credit facility. Each of the corporate credit facility, supplemental revolving credit facility, and 364-day revolving credit facility include a covenant that requires us to provide guarantees from certain of our subsidiaries in the event that our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P. The following subsidiaries have provided unsecured guarantees to the lenders under the credit facilities: Ford Component Sales, LLC; Ford European Holdings LLC; Ford Global Technologies, LLC; Ford Holdings LLC (the parent company of Ford Credit); Ford International Capital LLC; Ford Mexico Holdings LLC; Ford Motor Service Company; Ford Next LLC; Ford Smart Mobility LLC; and Ford Trading Company, LLC. On June 28, 2022, Ford Motor Company Limited, our operating subsidiary in the United Kingdom (“Ford Britain”), entered into a £750 million term loan credit facility with a syndicate of banks to support Ford Britain’s general export activities. Accordingly, U.K. Export Finance (“UKEF”) provided a £600 million guarantee of the credit facility under its Export Development Guarantee scheme, which supports high value commercial lending to U.K. exporters. We have also guaranteed Ford Britain’s obligations under the credit facility to the lenders. On June 30, 2022, Ford Britain drew the full £750 million available under the facility. This five-year, non-amortizing loan matures on June 30, 2027. 50 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Debt. As shown in Note 14 of the Notes to the Financial Statements, at June 30, 2022, Company debt excluding Ford Credit was $19.4 billion. This balance is $1.0 billion lower than at December 31, 2021, due to the repayment in full of our $1.5 billion delayed draw term loan facility, repayment of the remaining $954 million under our Loan Arrangement and Reimbursement Agreement with the U.S. Department of Energy, and scheduled maturities. These debt repayments were partially offset by the $750 million draw on our 364-day revolving credit facility and the £750 million ($908 million as of June 30, 2022) draw on our UKEF term loan credit facility. Leverage. We manage Company debt (excluding Ford Credit) levels with a leverage framework that targets investment grade credit ratings through a normal business cycle. The leverage framework includes a ratio of total Company debt (excluding Ford Credit), underfunded pension liabilities, operating leases, and other adjustments, divided by Company adjusted EBIT (excluding Ford Credit EBT), and further adjusted to exclude depreciation and tooling amortization (excluding Ford Credit). Ford Credit’s leverage is calculated as a separate business as described in the ”Liquidity and Capital Resources - Ford Credit Segment” section of Item 2. Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Company debt excluding Ford Credit. 51 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Ford Credit Segment Ford Credit ended the second quarter of 2022 with $25 billion of liquidity. During the quarter, Ford Credit completed $4.4 billion of public term funding. Key elements of Ford Credit’s funding strategy include: • Maintain strong liquidity • Prudently access public markets • Continue growth of retail deposits in Europe • Flexibility to increase ABS mix as needed; preserving assets and committed capacity • Target financial statement leverage of 9:1 to 10:1 • Maintain self-liquidating balance sheet Ford Credit’s liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet its business and funding requirements. Ford Credit regularly stress tests its balance sheet and liquidity to ensure that it can continue to meet its financial obligations through economic cycles. The following table shows funding for Ford Credit’s net receivables (in billions): June 30, 2021 December 31, 2021 June 30, 2022 Funding Structure Term unsecured debt $ 63.8 $ 59.4 $ 49.9 Term asset-backed securities 45.9 45.4 47.1 Ford Interest Advantage / Retail Deposits 11.3 12.9 12.5 Other (1.1) (0.2) 1.9 Equity 13.1 12.4 12.0 Adjustments for cash (15.3) (12.4) (7.8) Total Net Receivables $ 117.7 $ 117.5 $ 115.6 Securitized Funding as Percent of Total Debt 37.9 % 38.5 % 43.0 % Net receivables were $115.6 billion at June 30, 2022 and were funded primarily with term unsecured debt and term asset-backed securities. Securitized funding as a percent of total debt was 43.0% at the end of the second quarter of 2022. Public Term Funding Plan. The following table shows Ford Credit’s issuances for full year 2020 and 2021, planned issuances for full year 2022, and its global public term funding issuances through July 26, 2022, excluding short-term funding programs (in billions): 2020 Actual 2021 Actual 2022 Forecast Through July 26 Unsecured $ 14 $ 5 $ 4 - 7 $ 4 Securitizations (a) 13 9 8 - 10 6 Total public $ 27 $ 14 $ 12 - 17 $ 10 __________ (a) See Definitions and Information Regarding Ford Credit Causal Factors section. For 2022, Ford Credit now projects full year public term funding in the range of $12 billion to $17 billion. Through July 26, 2022, Ford Credit has completed $10 billion of public term issuances. 52 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Liquidity. The following table shows Ford Credit’s liquidity sources and utilization (in billions): June 30, 2021 December 31, 2021 June 30, 2022 Liquidity Sources (a) Cash $ 15.3 $ 12.4 $ 7.8 Committed asset-backed facilities 38.4 37.1 34.3 Other unsecured credit facilities 2.6 2.7 2.5 Total liquidity sources $ 56.3 $ 52.2 $ 44.6 Utilization of Liquidity (a) Securitization and restricted cash $ (8.1) $ (3.9) $ (2.7) Committed asset-backed facilities (11.3) (12.5) (15.3) Other unsecured credit facilities (0.5) (1.0) (0.5) Total utilization of liquidity $ (19.9) $ (17.4) $ (18.5) Gross liquidity $ 36.4 $ 34.8 $ 26.1 Asset-backed capacity in excess of eligible receivables and other adjustments (3.4) (2.8) (1.1) Net liquidity available for use $ 33.0 $ 32.0 $ 25.0 __________ (a) See Definitions and Information Regarding Ford Credit Causal Factors section. Ford Credit’s net liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable growth and decline, and timing of funding transactions. In June 2022, Ford Credit used its excess liquidity to repurchase approximately $3 billion of its public unsecured debt securities maturing in 2023, reducing interest expense and near-term maturities. At June 30, 2022, Ford Credit’s net liquidity available for use was $25 billion, $7 billion lower than year-end 2021. At June 30, 2022, Ford Credit’s liquidity sources including cash, committed asset-backed facilities, and unsecured credit facilities totaled $44.6 billion, down $7.6 billion from year-end 2021. Material Cash Requirements. Ford Credit’s material cash requirements include: (1) the purchase of retail financing and operating lease contracts from dealers and providing wholesale financing for dealers to finance new and used vehicles; and (2) debt repayments (for additional information on debt, see the “Balance Sheet Liquidity Profile” section below and the “Aggregate Contractual Obligations” table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 19 of the Notes to the Financial Statements in our 2021 Form 10-K Report). In addition, subject to approval by Ford Credit’s Board of Directors, shareholder distributions may require the expenditure of a material amount of cash. Moreover, Ford Credit may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters. Ford Credit plans to utilize its liquidity (as described above) and its cash flows from business operations to fund its material cash requirements. 53 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Balance Sheet Liquidity Profile. Ford Credit defines its balance sheet liquidity profile as the cumulative maturities, including the impact of expected prepayments and allowance for credit losses, of its finance receivables, investment in operating leases, and cash, less the cumulative debt maturities over upcoming annual periods. Ford Credit’s balance sheet is inherently liquid because of the short-term nature of its finance receivables, investment in operating leases, and cash. Ford Credit ensures its cumulative debt maturities have a longer tenor than its cumulative asset maturities. This positive maturity profile is intended to provide Ford Credit with additional liquidity after all of its assets have been funded and is in addition to its liquidity available to protect for stress scenarios. The following table shows Ford Credit’s cumulative maturities for assets and total debt for the periods presented and unsecured long-term debt maturities in the individual periods presented (in billions): July - December 2022 2023 2024 2025 and Beyond Balance Sheet Liquidity Profile Assets (a) $ 46 $ 75 $ 98 $ 127 Total debt (b) 36 61 79 111 Memo: Unsecured long-term debt maturities 6 8 11 26 __________ (a) Includes gross finance receivables less the allowance for credit losses (including certain finance receivables that are reclassified in consolidation to Trade and other receivables, net ), investment in operating leases net of accumulated depreciation, cash and cash equivalents, and marketable securities (excluding amounts related to insurance activities). Amounts shown include the impact of expected prepayments. (b) Excludes unamortized debt (discount)/premium, unamortized issuance costs, and fair value adjustments. Maturities of investment in operating leases consist primarily of the portion of rental payments attributable to depreciation over the remaining life of the lease and the expected residual value at lease termination. Maturities of finance receivables and investment in operating leases in the table above include expected prepayments for Ford Credit’s retail installment sale contracts and investment in operating leases. The table above also reflects adjustments to debt maturities to match the asset-backed debt maturities with the underlying asset maturities. All wholesale securitization transactions and wholesale receivables are shown maturing in the next 12 months, even if the maturities extend beyond second quarter 2023. The retail securitization transactions under certain committed asset-backed facilities are assumed to amortize immediately rather than amortizing after the expiration of the commitment period. As of June 30, 2022, Ford Credit had $127 billion of assets, $65 billion of which were unencumbered. Funding and Liquidity Risks. Ford Credit’s funding plan is subject to risks and uncertainties, many of which are beyond its control, including disruption in the capital markets, that could impact both unsecured debt and asset-backed securities issuance and the effects of regulatory changes on the financial markets. Refer to the “Liquidity - Ford Credit Segment - Funding and Liquidity Risks” section of Item 7 of Part II of our 2021 Form 10-K Report for more information. Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for finance receivable and operating lease financing, and assessing its capital structure. The table below shows the calculation of Ford Credit’s financial statement leverage (in billions): June 30, 2021 December 31, 2021 June 30, 2022 Leverage Calculation Debt $ 121.0 $ 117.7 $ 109.5 Equity (a) 13.1 12.4 12.0 Financial statement leverage (to 1) 9.3 9.5 9.1 __________ (a) Total shareholder’s interest reported on Ford Credit’s balance sheets. Ford Credit plans its leverage by considering market conditions and the risk characteristics of its business. At June 30, 2022, Ford Credit’s financial statement leverage was 9.1:1, at the lower end of Ford Credit’s 9:1 to 10:1 target range. 54 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Total Company Pension Plans - Funded Balances. As of June 30, 2022, our total Company pension overfunded status reported on our consolidated balance sheets was $0.7 billion and reflects the net funded status at December 31, 2021, updated for: service and interest cost; expected return on assets; separation expense; actual benefit payments; and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2021. Return on Invested Capital (“ROIC”). We analyze total Company performance using an adjusted ROIC financial metric based on an after-tax, rolling four quarter average. The following table contains the calculation of our ROIC for the periods shown (in billions): Four Quarters Ending June 30, 2021 June 30, 2022 Adjusted Net Operating Profit/(Loss) After Cash Tax Net income/(loss) attributable to Ford $ 3.4 $ 11.7 Add: Noncontrolling interest — — Less: Income tax (0.2) 1.6 Add: Cash tax (0.5) (0.7) Less: Interest on debt (1.9) (1.5) Less: Total pension/OPEB income/(cost) (0.7) 4.5 Add: Pension/OPEB service costs (1.1) (1.0) Net operating profit/(loss) after cash tax $ 4.6 $ 5.4 Less: Special items (excl. pension/OPEB) pre-tax (3.0) (3.0) Adjusted net operating profit/(loss) after cash tax $ 7.5 $ 8.3 Invested Capital Equity $ 34.8 $ 44.2 Debt (excl. Ford Credit) 25.9 19.4 Net pension and OPEB liability 11.5 5.2 Invested capital (end of period) $ 72.2 $ 68.8 Average invested capital $ 72.8 $ 72.0 ROIC (a) 6.3 % 7.4 % Adjusted ROIC (Non-GAAP) (b) 10.3 % 11.6 % __________ (a) Calculated as the sum of net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. (b) Calculated as the sum of adjusted net operating profit/(loss) after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. Note: Numbers may not sum due to rounding. 55 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) CREDIT RATINGS Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”) by the U.S. Securities and Exchange Commission: DBRS, Fitch, Moody’s, and S&P. In several markets, locally recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency of the credit risk associated with a corporate entity or particular securities issued by that entity. Rating agencies’ ratings of us are based on information provided by us and other sources. Credit ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating agency may have different criteria for evaluating company risk and, therefore, ratings should be evaluated independently for each rating agency. The following rating actions were taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022: • On May 2, 2022, Fitch affirmed the credit ratings for Ford and Ford Credit at BB+ and revised the outlook to positive, from stable. • On May 17, 2022, DBRS affirmed the credit ratings for Ford and Ford Credit at BB (high) and revised the outlook to positive, from stable. The following table summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs: NRSRO RATINGS Ford Ford Credit NRSROs Issuer Default / Corporate / Issuer Rating Long-Term Senior Unsecured Outlook / Trend Long-Term Senior Unsecured Short-Term Unsecured Outlook / Trend Minimum Long-Term Investment Grade Rating DBRS BB (high) BB (high) Positive BB (high) R-4 Positive BBB (low) Fitch BB+ BB+ Positive BB+ B Positive BBB- Moody’s N/A Ba2 Stable Ba2 NP Stable Baa3 S&P BB+ BB+ Positive BB+ B Positive BBB- 56 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) OUTLOOK We provided 2022 Company guidance in our earnings release furnished on Form 8-K dated July 27, 2022. Our actual results could differ materially from our guidance due to risks, uncertainties, and other factors, including those set forth in “Risk Factors” in Item 1A of our 2021 Form 10-K Report and as updated by our subsequent filings with the SEC. 2022 Guidance Total Company Adjusted EBIT (a) $11.5 - $12.5 billion Adjusted Free Cash Flow (a) $5.5 - $6.5 billion Capital spending About $7.0 billion Pension contributions $0.6 - $0.7 billion Global Redesign EBIT charges (b) About $1.5 billion Global Redesign cash effects (b) $1.0 - $1.5 billion Ford Credit EBT About $3 billion __________ (a) When we provide guidance for adjusted EBIT and adjusted free cash flow, we do not provide guidance for the most comparable GAAP measures because, as described in more detail below in “Non-GAAP Measures That Supplement GAAP Measures,” they include items that are difficult to predict with reasonable certainty. (b) We continue to review our global businesses and may take additional restructuring actions in markets where a path to sustained profitability is not feasible when considering the capital allocation required for those markets. Such actions may result in global redesign EBIT charges and cash effects in 2022 that are incremental to those set forth in the table. For full-year 2022, we continue to expect adjusted EBIT of $11.5 billion to $12.5 billion, which would represent 15% to 25% growth from last year, and adjusted free cash flow of $5.5 billion to $6.5 billion, with a significant portion coming from Automotive operations. Our guidance continues to assume 10% to 15% growth in vehicle wholesales from 2021 and assumes that semiconductor availability continues to improve. Our adjusted EBIT range assumes significantly higher profits in North America, collective profitability from other regional markets, strong but lower Ford Credit EBT of about $3 billion, and modest improvement in Mobility and Corporate Other EBIT. Other assumptions include: • Strong order banks and pent-up demand for our new and iconic products • Continued strength in pricing, which includes the benefit of pricing actions taken during the year • Commodity headwinds of about $4 billion, which we expect to offset with improvements in net pricing and mix • Continuation of other broad-based inflationary pressures, now expected to total about $3 billion for the year, up $1 billion from our estimate last quarter, while we are actively looking at opportunities to offset increases • Lower Ford Credit EBT reflecting primarily lower credit loss reserve releases, fewer returned off-lease vehicles, and more normalized credit losses. We also expect auction values to remain strong but to decline in the second half of the year as the supply of new vehicles improves 57 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Cautionary Note on Forward-Looking Statements Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation: • Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19; • Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule, and a shortage of key components, such as semiconductors, or raw materials can disrupt Ford’s production of vehicles; • Ford’s long-term competitiveness depends on the successful execution of Ford+; • Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs; • Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies; • Operational systems, security systems, vehicles, and services could be affected by cyber incidents, ransomware attacks, and other disruptions; • Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor issues, natural or man-made disasters, financial distress, production difficulties, capacity limitations, or other factors; • Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints; • Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness; • Ford’s new and existing products, digital and physical services, and mobility services are subject to market acceptance and face significant competition from existing and new entrants in the automotive, mobility, and digital services industries; • Ford’s near-term results are dependent on sales of larger, more profitable vehicles, particularly in the United States; • With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs; • Industry sales volume in any of Ford’s key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event; • Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors; • Inflationary pressure and fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments, including marketable securities, can have a significant effect on results; • Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors; • Ford’s receipt of government incentives could be subject to reduction, termination, or clawback; • Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles; • Economic and demographic experience for pension and other postretirement benefit plans (e.g., discount rates or investment returns) could be worse than Ford has assumed; • Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition; • Ford and Ford Credit could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, services, perceived environmental impacts, or otherwise; • Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations; • Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumers’ heightened expectations to safeguard their personal information; and • Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations. We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” in our 2021 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 58 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) NON-GAAP FINANCIAL MEASURES THAT SUPPLEMENT GAAP MEASURES We use both generally accepted accounting principles (“GAAP”) and non-GAAP financial measures for operational and financial decision making, and to assess Company and segment business performance. The non-GAAP measures listed below are intended to be considered by users as supplemental information to their equivalent GAAP measures, to aid investors in better understanding our financial results. We believe that these non-GAAP measures provide useful perspective on underlying operating results and trends, and a means to compare our period-over-period results. These non-GAAP measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as similarly titled measures used by other companies due to possible differences in method and in items or events being adjusted. • Company Adjusted EBIT (Most Comparable GAAP Measure: Net Income/(Loss) Attributable to Ford) – Earnings before interest and taxes (EBIT) excludes interest on debt (excl. Ford Credit Debt), taxes, and pre-tax special items. This non-GAAP measure is useful to management and investors because it focuses on underlying operating results and trends, and improves comparability of our period-over-period results. Our management ordinarily excludes special items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. Our categories of pre-tax special items and the applicable significance guideline for each item (which may consist of a group of items related to a single event or action) are as follows: Pre-Tax Special Item Significance Guideline ∘ Pension and OPEB remeasurement gains and losses ∘ No minimum ∘ Gains and losses on investments in equity securities ∘ No minimum ∘ Personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix ∘ Generally $100 million or more ∘ Other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities ∘ $500 million or more for individual field service actions; generally $100 million or more for other items When we provide guidance for adjusted EBIT, we do not provide guidance on a net income basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty, including gains and losses on pension and OPEB remeasurements and on investments in equity securities. • Company Adjusted EBIT Margin (Most Comparable GAAP Measure: Company Net Income/(Loss) Margin) – Company Adjusted EBIT margin is Company adjusted EBIT divided by Company revenue. This non-GAAP measure is useful to management and investors because it allows users to evaluate our operating results aligned with industry reporting. • Adjusted Earnings/(Loss) Per Share (Most Comparable GAAP Measure: Earnings/(Loss) Per Share) – Measure of Company’s diluted net earnings/(loss) per share adjusted for impact of pre-tax special items (described above), tax special items, and restructuring impacts in noncontrolling interests. The measure provides investors with useful information to evaluate performance of our business excluding items not indicative of earnings from ongoing operating activities. When we provide guidance for adjusted earnings/(loss) per share, we do not provide guidance on an earnings/(loss) per share basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses. • Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses. 59 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) • Company Adjusted Free Cash Flow (Most Comparable GAAP Measure: Net Cash Provided By/(Used In) Operating Activities) – Measure of Company’s operating cash flow excluding Ford Credit’s operating cash flows. The measure contains elements management considers operating activities, including Company excluding Ford Credit capital spending, Ford Credit distributions to its parent, and settlement of derivatives. The measure excludes cash outflows for funded pension contributions, global redesign (including separations), and other items that are considered operating cash flows under U.S. GAAP. This measure is useful to management and investors because it is consistent with management’s assessment of the Company’s operating cash flow performance. When we provide guidance for Company adjusted free cash flow, we do not provide guidance for net cash provided by/(used in) operating activities because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including cash flows related to the Company's exposures to foreign currency exchange rates and certain commodity prices (separate from any related hedges), Ford Credit's operating cash flows, and cash flows related to special items, including separation payments, each of which individually or in the aggregate could have a significant impact to our net cash provided by/(used in) our operating activities. • Adjusted ROIC – Calculated as the sum of adjusted net operating profit after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. Adjusted Return on Invested Capital (“Adjusted ROIC”) provides management and investors with useful information to evaluate the Company’s after-cash tax operating return on its invested capital for the period presented. Adjusted net operating profit after cash tax measures operating results less special items, interest on debt (excl. Ford Credit Debt), and certain pension/OPEB costs. Average invested capital is the sum of average balance sheet equity, debt (excl. Ford Credit Debt), and net pension/OPEB liability. 60 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Non-GAAP Financial Measure Reconciliations The following tables show our Non-GAAP financial measure reconciliations. Net Income/(Loss) Reconciliation to Adjusted EBIT ($M) Second Quarter First Half 2021 2022 2021 2022 Net income/(loss) attributable to Ford (GAAP) $ 561 $ 667 $ 3,823 $ (2,443) Income/(Loss) attributable to noncontrolling interests (8) (29) (8) (38) Net income/(loss) $ 553 $ 638 $ 3,815 $ (2,481) Less: (Provision for)/Benefit from income taxes (182) (153) (862) 576 Income/(Loss) before income taxes $ 735 $ 791 $ 4,677 $ (3,057) Less: Special items pre-tax 135 (2,619) 638 (8,485) Income/(Loss) before special items pre-tax $ 600 $ 3,410 $ 4,039 $ 5,428 Less: Interest on debt (453) (312) (926) (620) Adjusted EBIT (Non-GAAP) $ 1,053 $ 3,722 $ 4,965 $ 6,048 Memo: Revenue ($B) $ 26.8 $ 40.2 $ 63.0 $ 74.7 Net income/(loss) margin (GAAP) (%) 2.1 % 1.7 % 6.1 % (3.3) % Adjusted EBIT margin (Non-GAAP) (%) 3.9 % 9.3 % 7.9 % 8.1 % Earnings per Share Reconciliation to Adjusted Earnings per Share Second Quarter First Half 2021 2022 2021 2022 Diluted After-Tax Results ($M) Diluted after-tax results (GAAP) $ 561 $ 667 $ 3,823 $ (2,443) Less: Impact of pre-tax and tax special items 51 (2,082) 496 (6,756) Adjusted net income/(loss) – diluted (Non-GAAP) $ 510 $ 2,749 $ 3,327 $ 4,313 Basic and Diluted Shares (M) Basic shares (average shares outstanding) 3,992 4,021 3,986 4,014 Net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt 36 31 36 43 Diluted shares 4,028 4,052 4,022 4,057 Earnings/(Loss) per share – diluted (GAAP) (a) $ 0.14 $ 0.16 $ 0.95 $ (0.61) Less: Net impact of adjustments 0.01 (0.52) 0.12 (1.67) Adjusted earnings/(loss) per share – diluted (Non-GAAP) $ 0.13 $ 0.68 $ 0.83 $ 1.06 _________ (a) The first half of 2022 calculation excludes 43 million shares of net dilutive options, unvested restricted stock units, unvested restricted stock shares, and convertible debt due to their anti-dilutive effect. 61 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate Second Quarter First Half 2021 2022 2021 2022 Memo: FY 2021 Pre-Tax Results ($M) Income/(Loss) before income taxes (GAAP) $ 735 $ 791 $ 4,677 $ (3,057) $ 17,780 Less: Impact of special items 135 (2,619) 638 (8,485) 9,583 Adjusted earnings before taxes (Non-GAAP) $ 600 $ 3,410 $ 4,039 $ 5,428 $ 8,197 Taxes ($M) (Provision for)/Benefit from income taxes (GAAP) $ (182) $ (153) $ (862) $ 576 $ 130 Less: Impact of special items (84) 537 (142) 1,729 1,924 Adjusted (provision for)/benefit from income taxes (Non-GAAP) $ (98) $ (690) $ (720) $ (1,153) $ (1,794) Tax Rate (%) Effective tax rate (GAAP) 24.8 % 19.3 % 18.4 % 18.8 % (0.7) % Adjusted effective tax rate (Non-GAAP) 16.3 % 20.2 % 17.8 % 21.2 % 21.9 % Net Cash Provided by/(Used in) Operating Activities Reconciliation to Company Adjusted Free Cash Flow ($M) Second Quarter First Half 2021 2022 2021 2022 Net cash provided by/(used in) operating activities (GAAP) $ 756 $ 2,947 $ 5,248 $ 1,863 Less: Items not included in Company Adjusted Free Cash Flows Ford Credit operating cash flows $ 9,638 $ (1,340) $ 14,636 $ (1,759) Funded pension contributions (164) (154) (393) (328) Global Redesign (including separations) (a) (954) (137) (1,244) (285) Ford Credit tax payments/(refunds) under tax sharing agreement — — 4 — Other, net (279) 20 (270) (28) Add: Items included in Company Adjusted Free Cash Flows Company excluding Ford Credit capital spending $ (1,504) $ (1,503) $ (2,862) $ (2,852) Ford Credit distributions 4,000 600 5,000 1,600 Settlement of derivatives (133) (36) (158) 28 Company adjusted free cash flow (Non-GAAP) $ (5,122) $ 3,619 $ (5,505) $ 3,039 _______ (a) Global Redesign excludes cash flows reported in investing activities. 62 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) SUPPLEMENTAL INFORMATION The tables below provide supplemental consolidating financial information, other financial information, and U.S. sales by type. Company excluding Ford Credit includes our Automotive and Mobility reportable segments, Corporate Other, Interest on Debt, and Special Items. Eliminations, where presented, primarily represent eliminations of intersegment transactions and deferred tax netting. Selected Cash Flow Information. The following tables provide supplemental cash flow information (in millions): For the period ended June 30, 2022 First Half Cash flows from operating activities Company excluding Ford Credit Ford Credit Eliminations Consolidated Net income/(loss) $ (4,164) $ 1,683 $ — $ (2,481) Depreciation and tooling amortization 2,691 1,083 — 3,774 Other amortization 54 (662) — (608) Provision for/(Benefit from) credit and insurance losses 11 (118) — (107) Pension and OPEB expense/(income) (400) — — (400) Equity method investment dividends received in excess of (earnings)/losses and impairments 171 — — 171 Foreign currency adjustments (69) 129 — 60 Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments 7,908 66 — 7,974 Net (gain)/loss on changes in investments in affiliates 145 1 — 146 Stock compensation 165 5 — 170 Provision for/(Benefit from) deferred income taxes (1,352) 192 — (1,160) Decrease/(Increase) in finance receivables (wholesale and other) — (4,611) — (4,611) Decrease/(Increase) in intersegment receivables/payables 16 (16) — — Decrease/(Increase) in accounts receivable and other assets (1,720) (136) — (1,856) Decrease/(Increase) in inventory (2,507) — — (2,507) Increase/(Decrease) in accounts payable and accrued and other liabilities 3,131 49 — 3,180 Other 443 (325) — 118 Interest supplements and residual value support to Ford Credit (901) 901 — — Net cash provided by/(used in) operating activities $ 3,622 $ (1,759) $ — $ 1,863 Cash flows from investing activities Company excluding Ford Credit Ford Credit Eliminations Consolidated Capital spending $ (3,046) $ (23) $ — $ (3,069) Acquisitions of finance receivables and operating leases — (20,749) — (20,749) Collections of finance receivables and operating leases — 24,139 — 24,139 Purchases of marketable and other investments (5,382) (2,683) — (8,065) Sales and maturities of marketable securities and other investments 8,651 2,606 — 11,257 Settlements of derivatives 28 128 — 156 Other 471 2 — 473 Investing activity (to)/from other segments 1,631 (66) (1,565) — Net cash provided by/(used in) investing activities $ 2,353 $ 3,354 $ (1,565) $ 4,142 Cash flows from financing activities Company excluding Ford Credit Ford Credit Eliminations Consolidated Cash payments for dividends and dividend equivalents $ (807) $ — $ — $ (807) Purchases of common stock — — — — Net changes in short-term debt 832 (237) — 595 Proceeds from issuance of long-term debt 944 17,924 — 18,868 Payments of long-term debt (2,608) (22,089) — (24,697) Other (150) (49) — (199) Financing activity to/(from) other segments 35 (1,600) 1,565 — Net cash provided by/(used in) financing activities $ (1,754) $ (6,051) $ 1,565 $ (6,240) Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ (139) $ (229) $ — $ (368) 63 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Income Statement Information. The following table provides supplemental income statement information (in millions): For the period ended June 30, 2022 Second Quarter Company excluding Ford Credit Ford Credit Consolidated Revenues $ 37,934 $ 2,256 $ 40,190 Total costs and expenses 35,950 1,372 37,322 Operating income/(loss) 1,984 884 2,868 Interest expense on Company debt excluding Ford Credit 312 — 312 Other income/(loss), net (1,874) 51 (1,823) Equity in net income/(loss) of affiliated companies 54 4 58 Income/(Loss) before income taxes (148) 939 791 Provision for/(Benefit from) income taxes 54 99 153 Net income/(loss) (202) 840 638 Less: Income/(Loss) attributable to noncontrolling interests (29) — (29) Net income/(loss) attributable to Ford Motor Company $ (173) $ 840 $ 667 For the period ended June 30, 2022 First Half Company excluding Ford Credit Ford Credit Consolidated Revenues $ 70,129 $ 4,537 $ 74,666 Total costs and expenses 67,726 2,729 70,455 Operating income/(loss) 2,403 1,808 4,211 Interest expense on Company debt excluding Ford Credit 620 — 620 Other income/(loss), net (6,722) 49 (6,673) Equity in net income/(loss) of affiliated companies 15 10 25 Income/(Loss) before income taxes (4,924) 1,867 (3,057) Provision for/(Benefit from) income taxes (760) 184 (576) Net income/(loss) (4,164) 1,683 (2,481) Less: Income/(Loss) attributable to noncontrolling interests (38) — (38) Net income/(loss) attributable to Ford Motor Company $ (4,126) $ 1,683 $ (2,443) 64 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Balance Sheet Information. The following tables provide supplemental balance sheet information (in millions): June 30, 2022 Assets Company excluding Ford Credit Ford Credit Eliminations Consolidated Cash and cash equivalents $ 13,218 $ 6,298 $ — $ 19,516 Marketable securities 14,998 2,186 — 17,184 Ford Credit finance receivables, net — 30,716 — 30,716 Trade and other receivables, net 3,953 11,084 — 15,037 Inventories 13,976 — — 13,976 Assets held for sale 705 — — 705 Other assets 2,475 860 — 3,335 Receivable from other segments 83 1,232 (1,315) — Total current assets 49,408 52,376 (1,315) 100,469 Ford Credit finance receivables, net — 49,743 — 49,743 Net investment in operating leases 1,125 23,408 — 24,533 Net property 35,942 220 — 36,162 Equity in net assets of affiliated companies 4,074 122 — 4,196 Deferred income taxes 14,819 216 10 15,045 Other assets 14,215 1,392 — 15,607 Receivable from other segments — 16 (16) — Total assets $ 119,583 $ 127,493 $ (1,321) $ 245,755 Liabilities Company excluding Ford Credit Ford Credit Eliminations Consolidated Payables $ 22,242 $ 1,136 $ — $ 23,378 Other liabilities and deferred revenue 17,207 1,688 — 18,895 Debt payable within one year 1,533 42,286 — 43,819 Liabilities held for sale 360 — — 360 Payable to other segments 1,315 — (1,315) — Total current liabilities 42,657 45,110 (1,315) 86,452 Other liabilities and deferred revenue 25,871 2,350 — 28,221 Long-term debt 17,833 67,175 — 85,008 Deferred income taxes 942 885 10 1,837 Payable to other segments 16 — (16) — Total liabilities $ 87,319 $ 115,520 $ (1,321) $ 201,518 65 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selected Other Information. Equity. At June 30, 2022, total equity attributable to Ford was $44.2 billion, a decrease of $4.3 billion compared with December 31, 2021. The detail for this change is shown below (in billions): Increase/ (Decrease) Net income/(loss) $ (2.4) Shareholder distributions (0.8) Other comprehensive income/(loss), net (1.1) Total $ (4.3) U.S. Sales by Type. The following table shows second quarter 2022 U.S. sales volume and U.S. wholesales segregated by truck, SUV, and car sales. U.S. sales volume reflects transactions with (i) retail and fleet customers (as reported by dealers), (ii) governments, and (iii) Ford management. U.S. wholesales reflect sales to dealers. U.S. Sales U.S. Wholesales Trucks 234,186 278,029 SUVs 237,222 228,527 Cars 12,280 10,882 Total Vehicles 483,688 517,438 ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED For a discussion of recent accounting standards, see Note 2 of the Notes to the Financial Statements. 66